"All the words I can recall, could never capture all.. the loveliness of you"
See what I mean? See how romantic the lyrics in those days? Pamatay!. Got this from my dad's music collection. Damn it.. will somebody kick me way back in time. Scotteeeyy!?
Alright, let's get this job done. This is a wonderful story of two Filipino-Chinese families, ONE BLOCK-MAILING THE OTHER.
It started with a construction of a building, particularly a mall. The Masagana Citymall in Pasay City. I don’t know if you’ve seen it. It’s somewhere there (I actually dunno where) you might have been in there you just didn't know it (I think I've never been to Pasay). The construction was threatened with stoppage. It’s owner company FLADC (First Landlink Asia Development Corporation) which was owned by the Tiu’s encountered financial difficulties. It was heavily indebted to PNB for P190 Million.
Here’s what the Tiu’s did to get into this predicament. It mortgaged the 2 lands where the mall was being erected and used the money to erect the building. The thing was, the building construction was taking so long so it naturally follows the (ROI) return of investments is temporarily put to a stagnant position, hence putting the mortgage contract with the PNB in a brink of foreclosure.
So to stave off a foreclosure end-result of the mortgaged 2 lands, the Tius invited the Ongs to invest in FLADC. Both families entered a Pre-Subscription Agreement and under this agreement the Ongs and the Tius contracted to maintain equal shareholdings in FLADC. (so it’s like the Tius is saying to the Ongs, “come on in, mi casa es su casa!”.. of course that's just a whole bologny) The Ongs were to subscribe to 1 Million shares at a par value of P100.00 each while the Tius were to subscribe to an additional approximately half a million shares at P100.00 each in addition to their already existing subscription of roughly half a million.
Here’s where the bone of contention started..
In addition to the previous said agreement between both families, they agreed that the Tius were entitled to nominate the Vice –President and the Treasurer plus 5 Directors while the Ongs were entitled to nominate the President, the Secretary and 6 other Directors, including the Chairman of the Board of Directors. Moreover, the Ongs were given the right to manage and operate the mall. (So inferring from this said agreement, indirectly parang sinasabe ng Tius “Okay lang hawakan nyo yung top position, basta hawak namen yung pera" Utak den eh no?)
So buying themselves into the company, lets compute.. 1M x 100 pesos =100M, so the Ongs paid P100 Million in cash for 1M shares of stock. The Tius committed to contribute to the company a 4 storey building and 2 parcels of land respectively valued at P20M for 200T shares and P30M for 300T shares and P50M for 50T shares to cover the additional stock subscription. So basically their even right?
But the Ongs chipped in another P70M to FLADC and but wait, there's more, nagdagdag pa ng P20M handed to the Tius, over and above the P100M investment, so a total of P190M right? (So parang sinabe ng Ongs sa Tius “Sige bayaran nyo na P190M utang sa PNB para clean slate tayo, para good credit standing tayo kung uutang tayo ulet” E di tuwang-tuwa yung Tiu). So ganun nga nangyare, the P190M Ong investment was used to settle the P190M mortgage indebtedness of FLADC to PNB.
Okay na maganda na.. e kaso
The business harmony between the Ongs and the Tius in FLADC however was short-lived, because the Tius RESCINDED the PRE-SUBSCRIPTION AGREEMENT. They accused the Ongs of 1. refusing to credit FLADC shares covering their real property contribution. (Hala! San galing yun??). 2. Preventing two of the Tius from assuming positions as VP and Treasurer.
So obviously it’s an INTRA-CORPORATE CONTROVERSY, wag na tayo makialam pa, let’s not dig deeper into it.
Basically we see here a RESCISSION on grounds of BREACH OF CONTRACT.
ISSUE:
Question, Can they RESCIND?
HELD:
NO THEY CANNOT RESCIND.
Court said the Pre-Subscription Agreement will still be governed by Sec. 60 of the Corporation Code.
Now why did they say that?
In subscription contracts kase the subject matter of contract are usually unissued shares. In this case, the subject matter of contract between the Ongs & the Tius was the 1M unissued shares, binili nga ng mga Ongs diba para makapasok sila as shareholders. Now the court said since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code okay? And according to the code a subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation, its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Gets?
Now why did they say that?
In subscription contracts kase the subject matter of contract are usually unissued shares. In this case, the subject matter of contract between the Ongs & the Tius was the 1M unissued shares, binili nga ng mga Ongs diba para makapasok sila as shareholders. Now the court said since these were unissued shares, the parties Pre-Subscription Agreement was in fact a subscription contract as defined under Section 60, Title VII of the Corporation Code okay? And according to the code a subscription contract necessarily involves the corporation as one of the contracting parties since the subject matter of the transaction is property owned by the corporation, its shares of stock. Thus, the subscription contract (denominated by the parties as a Pre-Subscription Agreement) whereby the Ongs invested P100 million for 1,000,000 shares of stock was, from the viewpoint of the law, one between the Ongs and FLADC, not between the Ongs and the Tius. Otherwise stated, the Tius did not contract in their personal capacities with the Ongs since they were not selling any of their own shares to them. It was FLADC that did. Gets?
Now, punta tayo sa rescission..
Considering therefore, that the real contracting parties to the subscription agreement were FLADC and the Ongs alone, a civil case for rescission on the ground of breach of contract filed by the Tius in their personal capacities therefore will not prosper, because only FLADC (not the Tius) had the legal personality to file suit rescinding the subscription agreement with the Ongs simply because it was the real party in interest therein.
Remember the INCHOATE nature of the stockholders interest in the corporation? The corporation has a strong juridical personality separate and dinstinct from the stockholders right? In Guanzon & Sons vs. Register of Deeds I think they even made distinction between partition and conveyance in the transfer of corporate assets to its shareholders, if partition kase that means they own it kaya pinagparte-parte nila, the court said no the corporate personality is separate and distinct kaya its a conveyance not a partition. Gets?
Remember the INCHOATE nature of the stockholders interest in the corporation? The corporation has a strong juridical personality separate and dinstinct from the stockholders right? In Guanzon & Sons vs. Register of Deeds I think they even made distinction between partition and conveyance in the transfer of corporate assets to its shareholders, if partition kase that means they own it kaya pinagparte-parte nila, the court said no the corporate personality is separate and distinct kaya its a conveyance not a partition. Gets?
Now lets say the Tius were adversely affected by the Ongs unwillingness to let them assume their positions, as we refer to their intra-corporate controversy, the court said that rescission due to breach of contract is definitely the wrong remedy for their personal grievances. The Corporation Code, SEC rules and even the Rules of Court provide for appropriate and adequate intra-corporate remedies, other than rescission, in situations like this. Rescission is certainly not one of them, specially if the party asking for it has no legal personality to do so and the requirements of the law have not been met. (the principle kase is.. if the code allows it e di konting away lang & mababaw na dahilan rescission na). Imagine the court even said “A contrary doctrine will tread on extremely dangerous ground because it will allow just any stockholder, for just about any real or imagined offense, to demand rescission of his subscription and call for the distribution of some part of the corporate assets to him without complying with the requirements of the Corporation Code.”
Hence, the Tius, in their personal capacities, cannot seek the ultimate and extraordinary remedy of rescission of the subject agreement based on a less than substantial breach of subscription contract. Not only are they not parties to the subscription contract between the Ongs and FLADC; they also have other available and effective remedies under the law.
And remember the Trust Fund Doctrine? That doctrine prevents this thing to happen. E biro mo nga naman here you are like a good natured wide eyed trusting little child bringing all you have to the table in good faith trusting that it will be in good hands and will grow profit, tapos magugulat ka nalang biglang iiicha-pwera ka and uuwi kang walang dala.
If there'll be rescission then there'll be distribution. And the court said "Distribution of corporate assets and property cannot be made to depend on the whims and caprices of the stockholders, officers or directors of the corporation"
The court said.. “Apparently, the Tius do not realize the illegal consequences of seeking rescission and control of the corporation to the exclusion of the Ongs..”
“We are appalled by the attempt by the Tius, in the words of the Court of Appeals, to pull a fast one on the Ongs because that was where the problem precisely started. It is clear that, when the finances of FLADC improved considerably after the equity infusion of the Ongs, the Tius started planning to take over the corporation again and exclude the Ongs from it."
After all is said and done, no one can close his eyes to the fact that the Masagana Citimall would not be what it has become today were it not for the timely infusion of P190 million by the Ongs in 1994. There are no ifs or buts about it.
The court said even further "Without the Ongs, the Tius would have lost everything they originally invested in said mall. If only for this and the fact that this Resolution can truly pave the way for both groups to enjoy the fruits of their investments assuming good faith and honest intentions we cannot allow the rescission of the subject subscription agreement. The Ongs shortcomings were far from serious and certainly less than substantial; they were in fact remediable and correctable under the law. It would be totally against all rules of justice, fairness and equity to deprive the Ongs of their interests on petty and tenuous grounds."
So there you go. Never can anyone say it more clearly than the highest court.
So here we found out that a pre-subscription agreement no matter it is termed is a subscription agreement according to the code, and a subscription agreement cannot be rescinded on grounds of intra-corporate issues such as in this case prevention to assume office. The Corporation Code, the SEC Rules, and the Rules of Court in fact provide intra-corporate remedies and rescission is certainly not one of them because it is contrary and clearly violates the Trust Fund Doctrine.
The Ongs won this case.
The Ongs won this case.
